In what can only be described as a hyper-speed reversal from what were industry boom times less than just two years ago, mortgage companies have been getting utterly broadsided over the past six months. Until just recently, massive U.S. mortgage lender Countrywide Financial Corporation had skirted the problems, relying upon its size and general standing within the investment community. That standing is no longer held in high-esteem however, as the once proud company has seen its stock price decline nearly 65% since early-2007. The breathtaking five-year chart of the company’s rise and fall can be seen by clicking here.

Now fears are quickly surfacing that the employer of over 50,000 mortgage-related workers may go belly up due to the turmoil in the once-wild-and-woolly mortgage arena. Will the company survive and emerge from the credit roiling? Or will they fall victim to the past excesses in the sphere? (These excesses were built up in part due to the implied put established by former Federal Reserve Chairman Alan Greenspan, in which the central bank would bail out any moderately sized financial company that was failing due to its own lack of foresight and diligence).

With problems in the financial economy seemingly multiplying by the day, it is important to reflect on the role in the situation played by Alan Greenspan and global central bankers who unnaturally inflated the globe’s money supply over the past 10-20 years and created a very shaky financial and psychological set up, which is now beginning to unwind in front of our eyes. At this point, no action on the part of central bankers can fix the problems they created in the first place. Giving a heroin addict more heroin is not the solution to his problems. Giving a credit-addicted economy more false credit is not the answer to our economy’s problems. Especially when this false credit is extended at the expense of prudent savers and wage earners everywhere.

Click here for an article on emergency loans extended to the troubled corporation.

Those with deposits rush to pull out cash.

Meanwhile, the Fed SHOULD NOT be buying mortgage backed securities in open market operations. They change the rules as they go and as they see fit and rely on the general ignorance of the people. It is not good. Read a telling article here.

From Mike Shedlock aka “Mish” August 17, 2007:

“Flashback August 2: Countrywide made this statement - It is important to note that the Company has experienced no disruption in financing its ongoing daily operations, including placement of commercial paper.

Flashback August 9: Countrywide Financial Corp. faces “unprecedented disruptions” in debt and mortgage-finance markets that could hurt earnings and the company’s financial condition, the Calabasas, Calif., lender said in a regulatory filing.

In between, those dates it just so happens that CEO Angelo R. Mozilo managed to unload 92,000 shares at a price of $28.74 for a total payout of $1,292,600 above his option price of $14.69. I talked about that cashout in “Unprecedented Disruptions” at Countrywide.

But that is mere child’s play compared to the grand total of $536,348,378 as Kevin Depew reported. Is this a great country or what? Where else can you make a half billion dollars running a company into the ground?

Now think about that paragraph again. It goes a long way towards explaining why things are not as good as the bulls claim.

Wealth is simply far too concentrated at the top end, while debt is concentrated everywhere else. One cannot average up the two and say “on balance things are OK”. On balance things are not OK especially for those millions facing foreclosure. And things are going to get worse (lots worse) when the unemployment rate starts soaring.”

And an apt quote:

“Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments.” - Ayn Rand “Who Will Protect Us From Our Protectors?” The Objectivist Newsletter, May 1952

Filed under: Social Mood, Economics